Cyber Insurance Policies And Their Role In Mitigating Financial Risks From Cyberattacks – Cyber riskin viruses, malware, ransomware and unknown threats. Each of these risks has a technical component, and can affect both marine and marine operations.
In this advisory, we explore the work being done by IMO and BIMCO, and consider the tools available to improve corporate preparedness for digital risks in the shipping industry. We review insurance clauses that limit coverage for cyber incidents and marine insurance policies and outline risk transfer solutions for both onboard and offshore exposures.
Cyber Insurance Policies And Their Role In Mitigating Financial Risks From Cyberattacks
Following a digital risk management strategy, we outline what such a process might look like, and the ongoing response to evidence. This process will apply equally across different industries in the shipping industry.
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IMO MSC Resolution. 428(98) requests flag state authorities to ensure that cyber risks are properly addressed in the security management system (SMS) after the first annual verification of company compliance documents after January 1, 2021.
IMO Circular MSC-FAL.1/Circ.3, contains high-level recommendations and practical elements for effective marine risk management. It defines cyber risk as a measure of potential threats to technological assets from situations or events, which may lead to operational, security or security failures affected by damaged, lost or corrupted information or systems; and cyber risk management as the process of identifying, analyzing, evaluating and communicating cyber-related risks and accepting, avoiding, transferring or reducing them to an acceptable level, weighing the costs and benefits of actions of those who made and what things do.
The IMO has developed five pillars that support an effective cyber risk management system, namely (i) Identify, (ii) Protect, (iii) Identify, (iv) Respond and (v) Recover. Many flag state administrations provide third party resources to help ship owners and shareholders prepare for implementation. .
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The purpose of this clause is to try to address cyber security risks using standardized terms that can be applied to most shipping contracts. It requires those organizations to implement and maintain a level of cyber security “appropriate” for their business and to make reasonable efforts to ensure that their employees do the same.
In the event of an incident, the parties are expected to notify each other immediately and share additional details within 12 hours. There is a duty to take reasonable steps to mitigate and/or correct the incident, and to share relevant information as it becomes available.
The clause does not apply to payment fraud, and there is no force majeure clause, so the parties do not exclude their other obligations under the contract.
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Each party will be liable for damages up to an approved limit of USD 100,000 (subject to gross negligence or willful misconduct). This limit may be adjusted but may not exceed the counterparty’s risk agreements or existing cyber insurance provisions.
Looking for a standardized approach to compliance, the ISO27000 family of standards is available to ship owners and other stakeholders in the shipping industry.
They can be used as a tool for raising awareness and enforcing compliance for maritime cyber risk management, both on board and ashore, and as a tool to support the ISMS.
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One example is ISO 27001, which provides a set of procedures for establishing, implementing, operating, monitoring, evaluating, maintaining and improving a company’s ISMS.
The explanation below is made at a high level without analyzing the risks that may affect you. Upon request, we can provide a comprehensive and customized analysis after reviewing your water insurance policy.
This clause is present in the majority of Hull ship insurance contracts up to the end of 2019. Most current insurance contracts contain a variation of this clause (see below – LMA5403). The clause excludes cover where cyber is the only cause of death that insurers may be willing to cover, e.g. hacking of the navigation system leading to grounding and cargo damage.
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This clause only excludes cover where there is a cyber attack. For example, it does not apply to sudden losses such as negative maintenance improvements. One of the reasons this clause has been removed is because it is open to interpretation in situations like this involving “quiet cyber cover”, which is not accepted at Lloyd’s. A policy may provide silent cyber cover if (a) Cl.380 is not used or (b) for non-malicious cyber even if CL.380 is used.
Henceforth, international insurance markets such as Lloyd’s of London make changes in coverage and exclusions that need to be clarified. The clauses listed below are some amendments for CL.380.
This phrase is written for use on all types of hulls including Hull. Don’t rule out a cyber breach, regardless of whether it’s malicious or not. The language used in the exclusion is broad, and the clause is written as the most important clause.
What Does A Cyber Insurance Policy Cover?
This is a general term “cyber exclusion” that will be used in Hull’s ongoing insurance policies. The clause excludes catastrophic cyber losses, in accordance with LMA 5402, but it provides cover for cyber damage if the loss is not recoverable under the policy.
Note the wording of the phrase, which refers to “any computer” (and in the same broad sense) as a contributor to death, regardless of cause. Ship-specific cyber insurance should be considered where ship owners want to deal with this serious and growing threat.
Club P&I International Group – There is no express exclusion, but cover is subject to a war risk exclusion when claims arise from “any act of aggression by or against any armed force or any act of terrorism”. In such cases, there is a back-up automatically referred to as “Additional insurance 2004 (Biochemical risks)”, which provides insurance for $30m per ship for minor risks and -of risks including “the use or operation. , such as a way to damage any computer virus.”
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Fixed income insurance market – most insurance policies have a broad exclusion based on CL380, and may switch to one of the LMA5402 or 5403 exclusion types.
We emphasize the importance of having a war risk policy in addition to basic P&I insurance, otherwise there may be exposed P&I risk and unquantifiable balance sheet results due to third party costs of factored cyber threats.
Employees and customers whose data was stolen, or shareholders whose investments collapsed after a cyber breach, can look to company executives and board members. The exposure is made higher for companies that are listed on the market – the price drops when, for example, the company’s assets are lost or data is damaged, a statement can be mentioned.
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As the law evolves and litigation becomes more accessible to plaintiffs, the compensation of executive officers and Board members involves greater personal and corporate risks.
With an onshore cyber insurance policy, you are guaranteed immediate access – at no additional cost – to experienced legal counsel, IT forensics and crisis management experts (for example, required when dealing with ransoms), and social professionals who are ready to win. specifically the negative effects that cyber attacks can cause. Such experts can be incorporated into the company’s existing system during the event.
These risks show the insurance an important part of CL380, LMA5402 or LMA5403 as applicable in your Hull policy or war. This policy is an annual renewal policy and is used in the same way as a Hull reserve or traditional war.
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Howden Insurance Brokers is not a technical, commercial or legal adviser. Any interpretations made in this document should not be construed, and we in no way guarantee the accuracy of the material used or referred to in this document. If in doubt, legal advice appropriate to your circumstances should be obtained immediately. Insurance Opportunities, including Supplemental Insurance: A Brief Overview New Customer Strategies for Insurance How to Use AI throughout the Insurance Benefits Process, from Sales to Distribution The Best Guide to a Successful Travel Guide.
In our last post, we explored some of the regulatory issues affecting today’s cyber insurance market, including cybersecurity vulnerabilities, collective risk and capital shortages. Before cyber security can truly become the core of the digital economy – like ubiquitous products, affordable prices, constant prices – these problems must be solved. We have identified three main levers available to insurers:
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Pulling these levers will not unlock billions in cyber premium overnight. However, it will create an active and scalable cyber market – without the extreme volatility that brands now see. We’ll look at each of these levers in our next post, starting today with the first one: how to reduce risk through cybersecurity improvements.
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